Measuring the Nations Output and Income 12 1

Measuring the Nation’s Output and Income 12. 1

Gross Domestic Product (GDP): The Measuring of National Output In 2016 the United States GDP measured $18. 56 Trillion GDP Per Capita of $51, 638. 10 China’s GDP in 2014 was $21. 27 Trillion (but their currency is considered undervalued so it is difficult to accurately compare to other nations. ) GDP Per Capita of $15, 400 Why is China’s Per Capita so much lower than the United States?

GDP is a measure of National Output Japanese cars built in the US count towards the US GDP U. S. owned plants in Mexico or other countries do not GDP is calculated by multiplying all final good and services produced in a 12 month period by their prices Only “final goods” are included. What are those, and why?

Group Work for Extra Credit! Get into groups of two and have a writing utensil and a piece of paper ready for a GDP Challenge!!!!!

You will have 5 minutes to list, in order from 1 to 10 (one being the greatest), the top 10 individual national economies in the world. Cell Phones/Books prohibited Perfect Score gets 5 points Extra Credit

Check Your Answers Top 10 in Trillions of US Dollars China $21. 3 USA: $18. 5 Japan: $4. 93 Germany: $3. 49 UK: $2. 65 France: $2. 48 India: $2. 25 Italy: $1. 8 Brazil: $1. 77 Canada $1. 53

Does it really change that much? 2015 USA: $17. 4 China: $10. 4 Japan: $4. 6 Germany: $3. 9 UK: $2. 9 France: $2. 8 Brazil: $2. 4 Italy: $2. 1 India: $2. 0 Russian Fed: 2014 USA: $16. 3 China: $14. 8 India: $6. 4 Japan: $4. 5 Germany: $3. 4 Russian Fed: $3. 4 Brazil: $2. 9 France: $2. 4 UK: $2. 3 Indonesia: $2. 2

What is Excluded from GDP? 1. Intermediate goods üProducts used to make other products already counted in GDP. üSomething that is already a part of another product. What are some examples?

Examples Factory tires on a new car Processors Sugar on a computer used to make Pop Tarts Do aftermarket tires and rims count towards GDP? Should they?

What is Excluded from GDP? 2. Secondhand sales üAnything that you buy that is used üResold Houses, used cars, clothes from the salvation army. Why should these not be counted towards GDP?

What is Excluded from GDP? 3. Nonmarket Transactions üThings you do yourself o Mowing your lawn o cooking your own meals o cleaning your clothes üUnderground activity o Legal: Bake sales, babysitting, flea market, garage sales o Illegal: Drugs, prostitution (other than select parts of Nevada), gambling (unless done in a state

This means the U. S. underground Economy is $1. 4 Trillion (world’s 18 th largest economy) Why would some nations have higher rates of underground economy?

GDP Over Time In order to calculate GDP growth or loss you first need to establish a “Base Year” Base year is: Real GDP No Base Year: Nominal GDP – doesn’t account for inflation Current GDP- based upon prices that existed in those years What changes each year that makes GDP change, even if production does not?

GDP Shortfall GDP tells us nothing about: Composition of output What companies make or produce The impact of production on quality of life How building new homes will force a rare bird species into extinction Despite these limitations, GDP is still the best measure of overall economic health What does an increase in GDP indicate?

National Income Gross National Product (GNP) is the measure of national income in ONE YEAR. GNP is equal to GDP + all payments received from outside US – all payments made to foreign owned resources inside the US. GDP + Payments outside US – Payments made to foreign owned resources in US = Total GNP

Net National Product (NNP) NNP = GNP minus depreciation Depreciation represents capital equipment that wore out or became obsolete during the year National Income (NI) = NNP minus all taxes paid by businesses other than the corporate profit tax. Personal Income (PI) = Total amount of income received by individuals before taxes. Disposable Personal Income (DI) = PI- taxes Which measure of national income would you be interested in if you were trying to forecast the sales of consumer goods?

Economic Sectors & Circular Flows The economy consists of several different parts Look at chart on page 325 Consumer sector ( C ) Investor Sector ( I ) Government Sector ( G ) Foreign Sector (X – M ) The output expenditure model: GDP = C + I + G + (X – M)